The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

The FOMC tells us what they are thinking at 2:15pm and all eyes are on whether they extend their purchases of US Treasuries past the expiration of the plan in Sept. On March 18th they introduced this new form of QE and since then, 10 yr bond yields have risen from 3% to 3.67%, the implied inflation rate in TIPS has risen from 1.15% to 1.90%, the CRB index is up 21% and the US$ index has fallen 9%. I grant that the economic outlook looks dramatically better today than it did on March 18th but that’s my point, that the program was a waste in that the Fed can’t fight the market and win and the cost (loss of Fed credibility and potential inflation) has outweighed any benefits. With mortgage rates also higher, the MBS and agency debt purchase plan (the Fed’s own version of cash for clunkers) will likely continue. Chinese stocks fell almost 5% and to a one month low in a delayed response to Tuesday’s weaker than expected loan data.

The bullish sentiment continues as measured by the weekly II data where newsletter writers are now the most bullish since Jan ’08 and least bearish since Oct ’07 with those expecting a correction somewhere in the middle. The ABC weekly confidence poll rose 2 points to -47 and now puts it 2 points above the one year average. The gain was led by a 6 point rise in the Personal Finance component which rose to the highest level since mid May. Mortgage apps fell 3.5% led by a 7.2% fall in refi’s whereas purchases rose 1.1%. Bankrate.com said last night that the average 30 year mortgage rate is at 5.5%, just shy of the highest level since June 25th. The June Trade Deficit is expected to rise almost $3b to $28.7b led by a greater dollar value of oil imports as crude averaged $10 higher in June vs May. The Treasury auctions off $23b of our benchmark 10 year note this afternoon in a true sentiment test of that market.